Thursday, May 01, 2008

The End of the Oil Age

Current civilization is founded upon an abundance of cheap energy derived from hydrocarbons. Hydrocarbons not only run our transportation; they provide the power for all of our technology. Take a moment to think about your immediate home environment. Not only do hydrocarbons take you to work and to the grocery store; they are used for virtually everything around you. Your home and your furniture were built using the energy of hydrocarbons. If your chair has a metal frame, that metal was forged with hydrocarbons. Your carpet and your polyester clothing are products of hydrocarbons. All of the plastics around you are derived from hydrocarbons. Even this journal was printed and delivered using hydrocarbons. The very value of the money in your wallet is pegged to oil.

Go to the refrigerator (powered and produced via hydrocarbons) and take out any food item. Every single calorie of food requires ten calories of hydrocarbons. This is the blessing of modern hydrocarbon based agriculture with its natural gas based fertilizers and oil based pesticides. The human population on this planet currently exceeds 6 billion. Without hydrocarbon based agriculture, it is estimated that this planet could only sustain 2.5 billion people.

Previous to the industrial revolution, all civilizations were built on the energy of slave labor. Even the United States required the sweat of slaves during its early years. The industrial revolution rendered slavery, and all other forms of servitude, obsolete. First it was coal which supplied the power to run our furnaces. But eventually coal was replaced by oil, with its far superior caloric content. It was the late 1800’s when we began to seriously exploit oil resources. This abundance of cheap, high content energy gave rise to the technological revolution of the last hundred years. There are various estimates of the slave equivalents of modern civilization, but there is no doubt that every one of us sits in an opulent home built and served by a multitude of hydrocarbon slaves.

What is this black sticky stuff which is so ubiquitous, and so vital, to modern civilization? Hydrocarbons, it could be said, are the ultimate solar energy source. Oil and natural gas are formed in special geological and biological circumstances, over the course of millions of years. On a human time scale, they are truly nonrenewable resources.

The great hydrocarbon resources which have powered our civilization for the past century began with immense algal mats in the warm oceans of the Mesozoic Era. As dead algae slowly settled onto the floor of ocean shelves (neither too deep nor too shallow), it formed a thick organic ooze, rich in carbohydrates formed during the life of the organisms. In areas with moderate sediment influx, this algal ooze would eventually be buried. And as the sediment load above it became heavier and the burial became deeper, the organic ooze would be compacted and cooked into hydrocarbons. Near the shore, or in river channels, where leafy vegetation mixed in with the algal ooze, natural gas would be the final product. Likewise, if the algal ooze was buried too deeply, it would be cooked into natural gas. But the remainder would form the sticky black deposits which we know as oil.

After millions of years, the sediment has been transformed to an oil bearing shale. But that is only part of the story. Now we need pressure to force the hydrocarbons out of the shale and send them on their migration toward the surface. This is the goal of these hydrocarbons, to reach the surface of the earth and dissipate into the atmosphere. Fortunately for us, not all rock formations are porous enough to allow the hydrocarbons passage. In many areas, traps are formed in folded nonporous rock formations and in salt domes and ancient coral reefs. It is in these traps where the hydrocarbons will collect over many ages to form the oil deposits which have powered modern civilization.

Now enter the humans. Here is an exploration team fortunate enough to discover a sizable oil reserve. Wells are drilled to tap into the oil. Now oil in the ground flows at about the same rate as damp in a stone foundation, with the one major difference being that the oil is held at much higher pressure. When a new well is drilled, the open hole gives free passage to the pressurized oil immediately around it, which then surges to the surface. The effect is the classic gusher featured in so many films. However, once the pressure has been equalized in the immediate vicinity of the drill hole, you must begin supplying more and more energy to pump the oil through the rock or sediment to the well. Eventually you will reach a point where you must invest as much energy to pump the oil as you will get out of it. When this point is reached, production ends and the well is capped forever.

If you draw a graph of oil production over time, it will resemble the classic bell curve. The production curve will start from nothing, ascend to a peak production rate, and then begin to descend. The descending side of the curve means that you are investing more energy to produce the oil, which makes the oil more expensive. In the 1950s and 1960s a petroleum geologist named King Hubbert developed a methodology for combining the profiles of oil wells in a field to draw a production curve for the entire field. From there he went on to develop production curves for regions and even countries. Using industry data, Dr. Hubbert was able to tie his production curves to the discovery rate with a lag time of about thirty years.

Using his methodology, Dr. Hubbert predicted that oil production in the United States would peak in 1970. King Hubbert was ridiculed and condemned for his prediction. The conventional wisdom, as espoused by the U.S. Geological Survey (USGS), being that oil production would continue to rise for many years to come. Unfortunately for us, King Hubbert was correct. Oil production in the United States peaked in the early 1970s and has been declining ever since. Right now we are importing over 50% of our oil needs. The US production peak of the early 1970s set the stage for the oil shocks of that decade and the rise of OPEC. However, at that time we were able to increase imports to make up for the difference between domestic production and demand. Alaskan and North Sea oil were brought online soon enough to defang OPEC, and the U.S. became the oil protectorate of the world by forcing OPEC to accept the dollar as the currency for oil sales.

A number of predictions were made over the years following the U.S. peak regarding the global oil peak. Many people now look back on these false predictions and use them to condemn the current scientific consensus. However, none of these early predictions were actually made by oil geologists with access to the data base of the oil industry. Over the years the methodology has been improved and the data base has been augmented.

It was in the 1990s that oil geologists finally felt confident enough in the data to draw up graphs for world oil production. Two leaders in this effort are Colin J. Campbell and Jean H. Laherrère, petroleum geologists working for Petroconsultants. Petroconsultants holds one of the most complete data bases in the industry. In 1997, Petroconsultants annual report of the state of the oil industry (which cost a whopping $10,000 per copy) dealt strictly with the topic of peak production and predicted that world production would peak in the first decade of the new century and begin its irreversible decline sometime around 2010.

There have been several other independent assessments since then, and most agree on the timeframe. The most notable difference is the 2000 USGS report which stated that world oil production would not peak until 2020 at the earliest. However, it has been shown that the USGS study is deeply flawed. They accepted as valid oil reserves anything which had a 10% or greater chance of being found. The realistic benchmark is 50%. Three years after publication, the USGS report has already proven unreliable in comparison with actual production and discovery rates.

There are a lot of problems with oil production data. The industry has a tendency to underreport initial discoveries so that they can add them on later to give the impression of a steady discovery rate. A steady discovery rate looks more appealing to investors. OPEC countries, on the other hand, have a marked tendency to over-inflate their oil reserves when it comes time to adjust quotas under OPEC. And politically, nobody wants to let the general population know that the party is almost over. The US Energy Information Association (EIA) has publicly stated-though in a roundabout manner-that first they project future energy demand and then they come up with reserve and production figures to meet projected demand. Making sense of the data requires a lot of detective work, but a scientific consensus has been achieved.

The standard is espoused by Campbell and Laherrère. According to this scenario, we are at peak production right now. Currently, we are engaged in a tango between world oil production and the global economy. Rising oil prices lead to economic stagnation and a decrease in demand, which then leads to lower production and a softening in oil prices, until economic rebound results in demand once again rising above production. Of course, this is a simplified model. It would take much more space to add in all the other economic and oil factors, not to mention the effects of oil wars.

However, the major oil companies have started making coded announcements indicating that they know the future of the oil business will not match its past. Instead of investing in production and discovery, all of the majors have been shedding exploration staff and consolidating their holdings. None of this bespeaks a growing industry. And insiders know that there is very little excess capacity to be found anywhere. Saudi Arabia is just about the only country with the capability to increase production by any noticeable amount, and even they would be hard pressed to do so.

The world will not peak all at once. Most producers have already peaked. The only countries which have not yet peaked are all OPEC members : Saudi Arabia, Iraq, Kuwait, Abu Dhabi, and The United Arab Emirates. Note that these are all Middle Eastern countries. These nations taken collectively are called the swing producers : those countries which are still able to increase production to meet demand. And it is uncertain how long they will be capable of performing as swing producers.

There was considerable hope prior to the Afghan War that the Caspian Sea held oil reserves which would match-if not dwarf-the Middle East. However, exploration has produced disappointing results. The Caspian region does not hold nearly as much oil as at first supposed, and the oil found is highly tainted by sulfur. As a result, the oil majors have been scaling back their involvement in the Caspian region.

Some point to Russia as a rival to Saudi Arabia. This ignores the reality that Russia is simply resuming a production capacity that faltered following the collapse of the Soviet Union. Russian production peaked in 1987. The following graph, which was produced several years ago, is not entirely accurate in profiling Russia’s secondary peak, which should rise more steeply and will probably drop more dramatically. Aggressive Russian production now will be paid for by a quicker peak and a steeper decline.

Richard Duncan and Walter Youngquist developed a system in the late 1990s to model world oil production. As they ran simulations on this model, they attempted adding on additional units of oil, each unit equivalent to a reserve the size of the North Sea. Additional units brought into production after the peak had no effect on peak production. But they found that several additional units brought into production before the peak could delay the peak by a year or two. This would be equivalent to several new North Sea discoveries. Yet, oil exploration geologists warn that all we will find from now on are small isolated pockets. All of our knowledge and technological advancement have gone to show us where oil does not exist.

Still there are economists who will tell you that it is only a matter of money. If we throw enough money into exploration and development we will increase production. This seems to belie actual experience. Over the last thirty years increased investment and technological advances have led to only marginal gains in discovery and production. If it were otherwise, the industries would not be scaling back.

Others say that we will abandon hydrocarbons for better energy sources. This ignores the fact that there is no other energy resource capable of delivering as much energy as hydrocarbons-not renewables, not unconventional resources such as tar sands, not even coal. The only thing which comes close is nuclear, and this has too many other problems.

There are many true believers-including Secretary of Energy Spencer Abraham-who point to a world run by fuel cells. What fuel cell proponents won’t tell you is that hydrogen fuel cells are not an energy source. They are more properly a form of energy storage. In the natural world there is no such thing as free hydrogen. Hydrogen must be produced from a feeder material. Nor is it mentioned that it takes more energy to break a hydrogen bond than can be gained through the forging of a hydrogen bond. This is basic chemistry, as implied in the Second Law of Thermodynamics. As a result, hydrogen fuel cells will always have a net energy loss. Nor are they as clean as claimed. The pollution is simply removed from the individual vehicles to the plant where free hydrogen is generated. It is most likely that the hydrogen fuel cell myth is being promoted simply to keep the public-and investors-from panicking.

The truth is that peak oil has already had an impact on all of the major events of this young century. And it will have a major impact on all of our lives at a most personal level in the years to come. The public needs to be informed. Our civilization is about to undergo a radical change unparalleled in history. And those we are allowing to call the shots are more concerned with their own personal gain than with the general welfare.

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